Customer lifetime value goes social

The idea that companies should consider the lifetime value of their customers has become one of the core premises of sophisticated marketing over the past decade.

For many companies, the rule of thumb says that 20 per cent of their customers generate 80 per cent of the revenue. Companies that apply conventional lifetime value strategies typically pamper these customers with preferential treatment due to their high spending level.

Airlines have long rewarded their most frequent flyers and those that spend more on high-cost fares, for example. Casinos are also known to treat their high rollers to various indulgences, such as free drinks, meals, and accommodation. Applications of the lifetime value concept can be found right across industries and products.

Telephone and cable operators have devised extensive promotional plans that entice consumers with lower rates, hoping to generate greater profits for many years after the promotional rate expires. Financial services providers are increasingly developing an holistic view of their customers. It is not uncommon for a bank to offer customers lower rates on loans, for example, provided they also open a checking account with direct deposit of their salary.

Some of the lifetime value applications are more difficult to detect. For example, a high lifetime value customer calling the company’s support line may be routed to a special queue with shorter wait times and higher-level experts on the other side of line.

But is spending level the correct measurement of the customer’s value to the company? The customers mostly missed by companies that apply traditional customer lifetime value strategies are the “Everyday Influencers”. These customers typically make up 7 to 15 per cent of any company’s customer base. While they don’t spend much themselves, they highly influence others in their decisions where to shop, what to buy and what services to use.

Companies that want to optimise the customer lifetime value approach need to change the way they measure customer value. Rather than basing the value solely on the individual’s purchases, they should now include the value of purchases influenced by each customer. In this new equation, total customer value equals individual customer value plus customer influence value.

(To learn more, download the eBook, “The Influencer Marketing Revolution”, from the Resources section at www.pursway.com.)

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